Taking good care of ‘orphans’ is key in life insurance

An “orphan” policyholder in the life insurance sector refers to a policyholder whose agent is no longer working for the insurer. Most life insurance policies in India are sold by agents who often become the primary contact between the insurer and customer. The importance of the agent cannot be underestimated as at least 80% of individual new life insurance policies in India were sold by agents in fiscal 2009. In an ideal world, the agent continues to service the customer after a policy purchase. The role of the agent is particularly important during the policy renewal process and may include activities such as reminding customers about renewals, collecting renewal premiums and ensuring that the customer receives the receipts on time for tax purposes. Many policyholders in India depend entirely upon their agents for renewals and run the risk of their policies lapsing if their agent is no longer working with the company. This is particularly true if the agent has provided incomplete or incorrect contact details about the policyholder to the company.

A high rate of attrition among agents has created significant challenges for life insurers. According to figures from the Insurance Regulatory Development Authority (Irda), agent attrition levels were greater than 30% in FY09 with over 870,000 agents leaving their insurers. To make matters worse, a significant number of serving agents are classified as “inactive” by most insurers. While insurers try and address the high attrition rates by recruiting new agents aggressively, they are struggling to address the concerns of orphan policyholders. Our research suggests that the total number of such orphan policyholders is increasing and they now constitute a significant proportion of total policyholders for some of the largest insurers. Our work also indicates that orphan policyholders are not provided adequate customer service and support despite attempts by some life insurers to use company employees or other agents to replace the original agent. More importantly, orphan policyholders exhibit several signs of reduced engagement with the life insurer and appear to be less likely to renew existing policies or sign up for new ones. As a consequence, life insurance companies today are missing out on a significant opportunity to increase revenue and profit from their orphan policyholders.

Graphic: Yogesh Kumar / Mint

Life insurers have tried to address these problems by developing and implementing orphan policyholder programmes which address the customer service, policy renewal and additional product needs of an orphan policyholder. A comprehensive orphan policyholder programme should achieve the right balance between three different objectives:

1. Provide adequate service and support to the orphan policyholder, taking particular care during the months leading up to and the few months after an agent leaves the system. Our experience in India shows that there is a significantly higher risk of a policy sold by the agent lapsing during this period. It is critical to address the concerns and service needs of policyholders during this transition phase and to ensure that there is a smooth handover to an alternative model of customer service.

2. Ensure timely renewal of policies which pose significant challenges due to the lack of customer contact information and the potential mis-selling of policies by agents. Some agents may have deliberately withheld correct customer contact information from the insurer to ensure that the insurer does not bypass them and contact the customer directly. The problem becomes particularly severe if the policy has been mis-sold by the agent and the customer now wants the insurer to address the situation before renewing the policy.

3. Ensure additional sales through alternative processes to orphan policyholders who have additional needs. It is critical to ensure that the alternative process addresses practical aspects: who will initiate the discussion with the orphan policyholder about additional products; how will the contact be made; who will identify a suitable product; and how will the sale be closed?

Life insurers have pursued different options to address the objectives above. Some choose to re-assign orphan policyholders to other active agents while others ask their employees to directly deal with the policyholders. Re-assigning orphan policyholders to other agents could prove to be a cost-effective option, but runs the risk of leaving orphan policyholders dissatisfied with the level of service and support from these agents.

Irda’s current guidelines, which put a cap on agent commissions for policy renewals, appears to encourage agents to focus on acquiring new customers as opposed to serving existing customers.

Asking employees to cater to all orphan policyholders could help fill the void left by the agent in the eyes of the policyholder but this model may result in high costs for the insurer and a subsequent impact on the financial returns from the orphan policyholders.

What steps can orphan policyholders take if their agent has left the company or is not responding to their queries? The policyholder should:

1. Use other channels made available by the company to address their needs such as company toll-free numbers, branch offices and website.

2. Take responsibility for policy renewals by keeping track of premium renewal dates and ensuring timely payments. Most companies offer a variety of payment options to their policyholders as well as SMS and email alerts. The policyholder should also ensure that all contact information provided to the company is correct at all time.

3. Contact the company in case of mis-selling by the agent (who is no longer with the company now) and understand the options available to address the problem.

Orphan policyholders constitute a significant proportion of the total customer base for life insurance products in India today. Insurers cannot afford to ignore this important segment any longer and would be well advised to take good care of their “orphans” in future!

Govind Balan is a principal and Vinod Nair a partner at Diamond Management and Technology Consultants Inc. Both are based in Mumbai as part of Diamond’s India practice. Comments are welcome at feedback@livemint.com